When terrible things happen, it’s natural to want to help as quickly as possible. However, if you simply donate to the first charitable organization you find, your money may not achieve this goal.
At best, the organization might waste a good portion of your donation on costs unrelated to its cause. At worst, it might be an outright scam. For example, the FBI warned in 2020 that many supposed charities for COVID-19 relief were really coronavirus charity scams.
So if you’re donating your hard-earned money to a charity, it’s worth taking an extra step to ensure the one you’ve chosen is going to put it to good use. It only takes a few minutes to check, and it can mean the difference between doing real good with your charitable donation and having most or all of it go to waste.
Features of the Best Charities
The most crucial thing about any charity you give to is that it supports a cause you believe in. No matter how wisely a charity uses its money, there’s no point in giving to it if its goal is to support cancer research and yours is to fight climate change.
However, within any given category, some charities do a better job than others. Your money will do the most good in the hands of a charity that has a clear purpose, uses every dollar as effectively as possible to support that purpose, and has effective oversight to prove it.
1. Programs to Match Its Purpose
When you give money to a charity, you should have a clear idea what it’s going to do with it. Some charities have lofty-sounding goals, but they have no actual programs in place to achieve them.
For instance, BuzzFeed News reported in 2020 that people and companies had donated millions to the Black Lives Matter Foundation to support the Black Lives Matter movement. But that foundation had no connection with the movement. Its only programs were “get to know each other gatherings” between citizens and the police, and it hadn’t even spent any money on those.
Effective charities can draw a clear line between their stated mission and their daily work. Any charity can say its goal is to fight cancer. But a good one can tell you which specific weapons it’s using in the fight.
For instance, the charity might fund research into new treatments. It could provide monetary relief for cancer patients who can’t work. Or it could create friendlier hospital environments for children with cancer. Checking out a charity’s programs lets you see what it does with donations and decide if it’s worthwhile.
2. Effective Use of Funds
It’s not enough for a charity to say what it wants to do with your money. It also has to be able to show that it’s using your money for that purpose.
According to Consumer Reports, some so-called charities devote as little as 4% of the money they raise to their actual programs. The rest goes toward their own costs, such as paying staff, renting offices, and sending mailings. If you donated $100 to one of these charities, only $4 would go toward the cause you want to help.
Fortunately, most charities are more efficient with their funds. The charity watchdog group Charity Navigator says 9 in 10 charities it rates put at least 65% of their funds toward program expenses. And 7 out of 10 use at least 75% of their funds for that purpose. If you want your dollars to have as much impact as possible, donate to charities that do the same.
Of course, a charity has to spend some money on administration and fundraising. Without fundraisers, it would have no way to bring in additional donations. Likewise, without administration, it would have no way to process those donations and direct them toward its programs.
However, these costs don’t have to be high. Some organizations rated by Charity Navigator spend less than 3% of their funds on administration and less than 5% on fundraising. Food banks and food pantries typically fall into this category.
3. Efficient Fundraising
Even if a charity spends only 5% of its income on fundraising, that money isn’t well spent if it doesn’t do a good job raising funds. For example, if an organization spent $10,000 on a fundraiser that brought in only $10,000 in donations, it would end up with no more money than it had before. In that case, the entire fundraiser would be a pure waste of time and effort.
The best charities use their fundraising dollars much more efficiently. They minimize the amount they spend on each call or letter, and they direct those calls and letters to the people who are most likely to give. Using these methods, a well-run charity can bring in $2, $3, $4, or more for every $1 it spends on fundraising.
Charity Watch, another charity watchdog group, rates an organization as “highly efficient” if it spends no more than $25 for each $100 it raises. Charity Navigator is even stricter, reserving its top scores for organizations that spend no more than $20 for every $100 raised.
It’s easy for a charity to claim it’s using your money on programs and raising money efficiently. But if there’s no one overseeing the organization’s activities, you have no way of knowing if that’s true.
That’s why a good charity needs an independent board of directors to watch over its activities. The board keeps a close eye on the charity’s fundraising and use of funds to ensure it’s using its money to meet its goals.
Charity Navigator and the BBB Wise Giving Alliance agree that a charity’s board of directors should meet certain requirements. It should have at least five board members, so power is not concentrated in the hands of just one or two people. These members must meet regularly and keep track of what happens in their meetings.
Ideally, the board members should not receive a salary from the charity or borrow any money from it. Doing either of these things would give them a financial incentive to say the charity is in good shape even if it’s not. Unpaid board members can be truly independent and make judgments that aren’t clouded by financial interest.
The BBB Wise Giving Alliance gets even more specific than that. It says a charity should conduct regular assessments — at least one every two years — of how well the organization meets its goals. The board should see the reports of these assessments and sign off on any changes to be made in the future.
When you support an organization with this kind of oversight, you can feel confident your charitable giving is doing what you want it to do.
A reputable charity should be willing to explain how it uses its money, not just to its own board but to the public. All incorporated nonprofit organizations in the U.S., known as 501(c)(3) organizations, are required to file an annual report with the IRS called Form 990, which reveals details like:
- How many people are on the board
- How many employees the charity has and how much money it spends on their salaries
- How many unpaid volunteers it has
- How much income it took in over the past year and from where
- How much it spent and what its most significant expenses were
But the best charities go beyond what the law requires. They have regular audits of their finances by an independent accountant, and they make these reports available to the public.
Transparent charities also disclose who’s on their board, how much they make, and how it sets salaries for its executives. That way, donors can see the organization isn’t just enriching its employees or board members with money that should be going toward programs.
Money isn’t the only thing of value donors hand over to a charity. They also provide their personal information, such as names, addresses, and phone numbers. Charities can make money by passing this information on to other charities or even businesses.
Identifying the Best Charities
Many different criteria distinguish good charities from bad ones. Researching all these facts on your own every time you want to give money to an organization would take hours.
Fortunately, you don’t have to. Several charity watchdog organizations have done the work for you. Each year, they research and evaluate charities from all over the country and summarize their findings in an easy-to-read snapshot. As a donor, all you have to do is type the charity’s name into a website to get a quick picture of its mission, finances, oversight, and transparency.
BBB Wise Giving Alliance
The BBB Wise Giving Alliance is a project of the Better Business Bureau. It rates charities on 20 standards sorted into four broad categories:
- Governance and Oversight. The charity must have a board with at least five voting members who meet at least three times per year. No more than 10% of those members can receive any pay, and paid members cannot serve as the chair or treasurer. Board members may not vote on any decision in which they have a conflict of interest.
- Effectiveness. Charities must set clear goals and measure their success at achieving them. At least once every two years, they must prepare a performance report and submit it to the board. It should cover the organization’s stated goals, how well its activities fit with those goals, how effective its programs are, and how it could improve its performance.
- Finances. Charities should spend at least 65% of their money on programs and no more than 35% on fundraising. They must not hoard more than three times their annual expenses. Each year, a charity must prepare an accurate financial statement for the board covering its income and expenses for the past year and a budget for the next one.
The BBB Wise Giving Alliance creates a report for each charity it reviews. The report sums up whether or not it meets each of these 20 standards. If the answer for any standard is unclear, it’s marked “unable to verify.” A charity that meets all 20 standards earns the label “BBB Accredited.” That makes it easy for donors to identify these top-notch organizations at a glance.
To see the BBB’s report for a specific charity, type its name into the search box on the main page. If you’re not sure of the name, you can view a complete list of all the organizations the watchdog covers. You can sort the list by the first letter of the charity’s name or the type of cause it supports, such as the arts, the environment, or health.
But there’s no way to sort the list to show only BBB-accredited charities. You must click on each organization individually to see whether it meets the watchdog’s standards.
A BBB Wise Giving Alliance report sums up its information in a simple yes-or-no form: Does a charity meet this standard, or doesn’t it? If you want a more detailed look at a charity, one that shows you exactly how well it performs on each standard, Charity Navigator can provide it.
This watchdog covers only certain types of charities. They must be 501(c)(3) organizations based in the U.S. and at least 7 years old. They must also have at least $1 million in annual revenue, including at least $500,000 raised from charitable donations.
To ensure charities have support from the public, this watchdog only rates organizations that spend at least 1% of their revenue on fundraising and 1% on administration. And there are specific types of charities — such as land trusts, hospitals, and schools — it doesn’t cover.
Thus, when you go to Charity Navigator, you may not be able to find a report for the charity that interests you. But if it has one, it will be quite detailed. Its ratings cover 24 standards across four broad categories:
- Financial Efficiency. A charity’s financial efficiency is a measure of how effectively it uses its funds. Charity Navigator evaluates it using information from the charity’s Form 990. It considers what share of the charity’s expenses go to programs, administration, and fundraising. It also looks at how much money it raises for each dollar spent on fundraising.
- Financial Capacity. A charity must be able to meet its goals. To measure financial capacity, Charity Navigator compares the charity’s Forms 990 across several years to see how fast its programs are growing. Faster growth means it’s doing more and more each year to help people. It also looks at how much working capital (readily available money) the charity has to pay for its programs and how its liabilities (debts) stack up against its assets.
- Accountability. Charity Navigator measures a charity’s governance and ethical practices by looking at 12 pieces of data from Form 990. These include how the board works, whether the charity has spent money for purposes other than its stated mission, and the chief executive officer’s salary. It also considers how the organization deals with conflicts of interest, handles employee complaints, and stores essential records.
Charity Navigator gives each organization a score on each of these standards. Then, it plugs them all into a formula to give the organization three overall scores on a 100-point scale. There’s one score for financial health, one for accountability and transparency, and one for the two put together. It also provides scores on a 4-star scale for each of these categories.
When you view an organization’s report on Charity Navigator, you see all three scores — both the percentile and the star rating — at the top of the page. You can scroll down the page for more detail on the organization’s mission and finances and how it scored on each standard.
The search function on Charity Navigator’s website is a bit more sophisticated than that of the BBB Wise Giving Alliance. You don’t need to type the exact name of a charity. Instead, it can find the organization based on an abbreviation, such as NRDC for Natural Resources Defense Council.
You can also do advanced searches. For instance, you can search for charities by size, location, star rating, or the cause it supports. And when you’re viewing the report for one charity, you can scroll down to the bottom of the page to see other highly rated charities that support the same cause.
Unlike Charity Navigator and the BBB Wise Giving Alliance, CharityWatch does not explain all its standards for rating charities. It only outlines its two primary criteria: the percentage of a charity’s expenses that go toward programs and the amount it spends on fundraising for every $100 it raises.
However, CharityWatch also has standards it doesn’t explain in detail. These cover factors such as governance, disclosure of financial information, and how much money a charity keeps in reserve rather than spending it on programs.
To rate organizations, CharityWatch examines various financial documents, including the organization’s audited financial statements, federal and state tax forms, and annual reports.
It then distills all this information down to a single letter grade, from A+ to F. For example, an organization that devotes 65% of its spending to programs and spends $30 for every $100 it raises would get a B-. The top grade, A+, goes only to charities that put at least 90% of their spending toward their programs and spend no more than $4 to raise $100.
Because it spends so much time evaluating each organization, CharityWatch doesn’t rate as many of them as either Charity Navigator or the BBB Wise Giving Alliance. Currently, it covers around 1,500 charities (though that’s up from 600 in July 2020). It focuses on large charities that have been around at least three years, work on a nationwide scale, and receive at least $1 million per year in donations.
The CharityWatch website has a list of top charities that earn grades of B+ or better. Anyone can view this list in full, sort it by category, and click on an organization’s name to see its full report. But to view the full report for any organization that isn’t on the top charities list, you must sign up for a membership to the website, which costs $50 per year.
Unlike other charity watchdogs, GuideStar doesn’t rate nonprofits. Instead, it compiles essential information about them on a single page. But you must have an account on the site to view most of this information.
Without an account, you can search the GuideStar site to find listings for more than 1.8 million U.S. charities. Each listing shows the organization’s name, location, income, assets, and employer identification number.
Listings also show whether an organization has earned a “seal of transparency.” That’s the only rating GuideStar provides, and all it rates is how much information a nonprofit discloses about itself. There are four levels of seals, from bronze through platinum, for different amounts of disclosure.
But you can’t get much more detail about any given charity without an account. All you can see is the basic profile for a single charity, which includes:
- The year the organization gained tax-exempt status
- Its mailing address
- Its primary type of charitable activity
- The name of its executive director
- The nonprofit’s summary of its programs, results, goals, and strategies for reaching them
With a free account, you can view more profiles and see more details about each organization. GuideStar can show you its Forms 990 for the past three years, its revenue and expenses for this year, and the names of the CEO, board chair, and board of directors.
The top charity watchdogs focus primarily on large, high-profile charities that many people are likely to search for. But there are also many smaller, lesser-known charities doing useful work throughout the world.
One site that rates these smaller charities is GiveWell. It offers a select list of charities that “save or improve lives the most per dollar.” Most of these are nonprofits that work in the poorest parts of the world, such as sub-Saharan Africa.
GiveWell focuses on charities with specific programs that research has shown to make a big difference in people’s lives. Examples include vaccination, distributing mosquito nets to prevent malaria, and giving cash directly to the poor.
This organization researches charities by reviewing their documents, speaking to their representatives, and conducting site visits. It looks for cost-effective and transparent programs that can handle more funding at this time. It publishes complete reports only for the handful of organizations that make its list of the best charities in any given year.
GlobalGiving vets organizations by examining their legal documents, financial records, and program materials as well as making in-person visits. It repeats this process every two years to ensure organizations are still performing up to its standards.
Additionally, GlobalGiving requires every organization on the site to submit quarterly project reports. It emails these to donors so they can see how the organizations are using their money.
Giving to charity isn’t just a way to help others. It’s also a way to help yourself. Research by happiness economists published in the Journal of Economic Behavior & Organization shows that giving to charity makes people happier. It makes you feel good about yourself and enhances your sense of connection to others.
But you’ll feel even better about your donation if you know your money is really going to change people’s lives. By taking just a few minutes to check out a charity before giving, you can ensure each dollar you give does as much good as possible. And even more important, you’ll know your money is going to a good cause rather than lining the pockets of a scammer.